perhaps, give at Paris 25 fr., more or less, for every pound sterling payable in London.*

This is what is called the course of exchange, being, in fact, a mere specification of the quantity of precious metal people will consent to give, for the transfer of a right to receive a given quantity of the same metal at any other specified place. The particular locality of the metal reduces or increases its value, in relation to the same metal situated elsewhere.

The exchange is said to be in favour of any country, France for example, whenever less of the precious metal is there given for, than will be produced by, a bill of exchange upon another country; or whenever in the foreign country more of the precious metal is given for a bill of exchange on France, than it will there produce to the holder. The difference is never very considerable, and can not exceed the charge of transporting the precious metal itself; for, if a foreigner, who wants to make a payment at Paris, can remit the sum in specie at less expense than he could be put to by the existing course of exchange, he would undoubtedly remit in specie.t

It has been imagined by some people, that all debts to foreigners can be paid by bills of exchange; and measures have been frequently suggested, and sometimes adopted, for the encouragment of this fictitious mode of payment. But this is a mere delusion. A bill of exchange has no intrinsic value; it can only be drawn upon any place for a sum actually due at that place; and no sum can be there actually due, unless an equal value, in some shape or other, has been remitted thither: the imports of a nation can only be paid by the national export; and vice versa. Bills of exchange are a mere representative of sums due; in other words, the merchants of one country can draw bills on those of another for no more, than the full amount of the goods of every description, silver and gold included, which they may have sent thither directly or indirectly. If one country, says France, have remitted to another country, Germany perhaps, merchandise to the value of 10,000,000 fr., and the latter have remitted to the former to the amount of 12,000,000 fr., France can pay as much as ten millions by the means of bills of exchange, representing the value of her export; but the remaining two millions can not be so discharged directly, although possibly they may by bills of exchange upon a third country, Italy, for instance, whither she may have exported goods to that extent.

* If the credit on London be payable in paper-money instead of specie, the course of exchange with Paris of the pound sterling, may, perhaps, fall to 21 fr. 18 fr. or even less, in proportion to the discredit of the paper of England.

In that expense I include the charge and risk of transport and of smuggling also, if the export of specie be prohibited; which latter is proportionate to the difficulty of the operation. The risks are estimated in the

rate of insurance.

There is, indeed, a species of bills, called by commercial men, accommodation-paper, which actually represents no value whatever. A merchant at Paris, in league with another of Hamburgh, draws bills upon his correspondent, which the latter pays or provides for, by re-drawing and negociating or selling bills at Hamburgh upon his correspondent at Paris.So long as these bills are in possession of any third person, that third person has advanced their value. The negociation of such accommodation-paper is an expedient for borrowing, and a very expensive one; for it entails the loss of the banker's commission, brokerage and other incidental charges, over and above the discount for the time the bills have to run. Paper of this description can never wipe out the debt, that one nation owes another; for the bills drawn on one side balance and extinguish those on the other. The Hamburgh bills will naturally counterpoise those of Paris, being in fact drawn to meet them; the second set destroys the first, and the result is absolute nullity.

Thus, it is evident, that one nation can not otherwise discharge its debts to another, than by remittance of actual value in goods or commodities, in which term I comprise the precious metals, amongst others, to the full amount of what it has received or owes. If the actual values directly remitted thither are insufficient to balance the receipts or imports thence, it may remit to a third nation, and thence transport produce enough to make up the deficit. How does France pay Russia for the hemp and timber for ship-building imported thence?— By remittance of wines, brandies, silks, not merely to Russia, but, likewise, to Hamburgh and Amsterdam, whence again a remittance of colonial and other commercial produce is forwarded to Russia.

Governments have commonly made it their object to contrive that the precious metals shall form the largest possible portion of the national import from, and the least possible portion of the national export to, foreign countries. I have already taken occasion to remark, with regard to what is improperly called the balance of trade, that, if the national merchant finds the precious metals a more profitable foreign remittance than another commodity, it is, likewise, the interest of the state to remit in that form; for the state can only gain and lose in the persons of its individual subjects; and, in the matter of foreign commerce, whatever is best for the individuals in the aggregate, is best for the state also.* Thus, when impediments are thrown in the way of the export of the precious metals by individuals, the effect is to compel an export in some other shape, less advantageous to the individual and the public too.

This position applies to foreign commerce only; the monopoly-profits of individuals in the home-market are not entirely national gains. In internal dealings, the sum of the utility obtained is all that is acquired by the community.

SECTION II.

Of Banks of Deposit.

THE Constant intercourse between a small state and its neighbours occasions a perpetual influx of foreign coin. For, although the small state may have a national coinage of its own, yet, the frequent necessity of taking the foreign instead of the national coin in payment, requires the fixation of the ratio of their relative value, in the current transactions of business.

There are many mischiefs attending the use of foreign coin, arising chiefly from the great variation of weight and quality. It is often extremely old, worn, and defaced; not having participated in the general re-coinage of the nation that issued it, where, perhaps, it is no longer current; all which circumstances, though considered in settling its current relative value to the local coin, yet, do not quite reduce it to the natural level of depreciation.

Bills drawn from abroad upon such a state, being payable in the coin thus rendered current, are, in consequence, negociated abroad at some loss; and those drawn upon foreign countries, and, consequently, payable in coin of a more steady and intelligible value, are negociated in the smaller state at a premium, because the holder of them must have purchased them in a depreciated currency. In short, the foreign coin is always exchanged for the local currency to a loss. (a)

The remedy devised by states of this inferior class is the subject of the present section. They established banks,* where private merchants could lodge any amount of local national coin, of bullion, or of foreign coin, reckoned by the bank as bullion; and the amount, so lodged, was entered as so

Venice, Genoa, Amsterdam, and Hamburgh had each an establishment of this nature. All have been swept away by the torrent of the revolutionary war; but there may be some use in examining the nature of institutions, that may some day or other be re-established. Besides, the investigation will throw light upon the history of the communities that established them, and of commerce in general. At any rate, it was necessary to enumerate all the various expedients that have been resorted to as substitutes for money.

(a) Why, our author has not told us; but it may be inferred, because the local currency is made up of foreign and domestic coin. This is by no means a necessary consequence; for the local authority may have left the contracts of individuals quite free; and their paper-dealings may be expressed in any coin that may be preferred. T.

much money of the legal national standard of weight and quality. At the same time the bank opened an account with each merchant making such deposit, giving him credit for the amount of the deposit. Whenever a merchant wanted to make a payment, there was no occasion to touch the deposit at all; it was sufficient to transfer the sum required, from the credit of the party paying, to that of the party receiving. Thus, values could be transferred continually by a mere transfer in the books of the bank. The whole operation was conducted without any actual transfer of specie; the original deposit, which was entered at the real intrinsic value at the time of making it, remained as security for the credit transferred from one person to another; and the specie, so lodged with the bank, was exempt from any reduction of value by wear, fraud, or even legislative enactment.

The money still remaing in circulation, wherever it was exchanged for the bank deposits, that is to say, for entries in the bank books, necessarily lost in proportion to the reduction of its intrinsic value. And this loss occasioned the difference of value, or agio at Amsterdam, between bank money and circulating money, which was on the average from 3 to 4 per cent. in favour of the former.

It will easily be imagined, that bills of exchange, payable in a currency so little liable to injury or fluctuation, must be negotiable on better than ordinary terms. In fact, it was observable, that on the whole, the course of exchange was rather in favour of the countries, that paid in bank, and unfavourable to those that paid in circulating money only.

The bank retained these deposits in perpetuity; for the reissue would have been attended with serious loss; inasmuch as it would have been the same thing, as producing good money of the full original value, to be taken at par with the deteriorated circulating coin, which passes current for-not its intrinsic, but its average weight. The coin withdrawn from the bank would have been mixed up with the mass of circulation, and passed current at par with the rest. So that the withdrawing such deposits would have been a gratuitous sacrifice of the excess of value of bank above circulating money.

This is the nature of banks of deposit; most of which combined other operations with the primary object of their institution, but of them I shall speak elsewhere. They derived their profits, partly from a duty levied upon every transfer, and partly from operations incident to, and compatible with their institution; as, for example, advances made upon a deposit of bullion.

It is evident, that the inviolability of the deposit, confided to them, is essential to the success of such establishments. At Amsterdam, the four burgomasters, or municipal magistrates, were trustees for the creditors. Annually, on leaving office, they handed over the trust to their successors, who, after inspecting the account and verifying it by the registers of the

bank, bound themselves by oath, to surrender their charge inviolate to their successors in office. This trust was scrupulously executed from the first establishment of the bank in 1609 until 1672, when the forces of Louis XIV. penetrated as far as Utrecht. The deposits were then faithfully restored to the individuals. It would seem to have been afterwards less scrupulously managed; for, when the French took possession of that capital in 1794, and called for a statement of the concern, it was found to be in advance of no less a sum than 10,624,793 florins to the India company, and to the provinces of Holland and West-Friezeland, which were wholly unable to re-pay it. In a country governed by a power without control or responsibility, it may be expected, that such a deposit would have been still more exposed to violation. (a)

SECTION III.

Of Banks of Circulation or Discount, and of Bank-notes, or Convertible Paper.

THERE is another kind of bank, founded on totally different principles; consisting of associated capitalists, subscribing a capital in transferable shares, to be employed in various profitable ways, but chiefly in the discount of bills of exchange, that is to say, the advance of the value of commercial paper not yet due, with the deduction of interest for the time it has to run, which is called, the discount.

These companies, with a view to enlarge their capital and extend their business, commonly issue notes, purporting to bear a promise to pay to bearer at sight, the gold or silver specified on the face of them. Their security for the due discharge of these engagements is, the commercial paper held by the bank, and subscribed by individuals in solvent circumstances; for the company gives its notes in discount, or, what is the same thing, in purchase of this paper.

(a) Public banks of deposit are now quite obsolete, and will probably never be revived. In fact they are clumsy expedients suited only to the early stages of commercial prosperity, and are liable to many inconveniences. They hold out a strong temptation to internal fraud and violence, as well as to external rapacity; they withdraw from active utility a large portion of the precious metals, which might perhaps be turned to better account elsewhere; and they yield a degree of facility of circulation nowise superior to what may be afforded by the common process of banking, except perhaps in security, and infinitely more expensive to the public and to individuals. They have accordingly been every where supplanted by banks of circulation, or by the expedient of an inconvertible papermoney. T.